By Cho Mu-hyun
The Korea Communications Commission (KCC), the nation’s top telecom regulator, is pressing telecom companies to reduce the subsidies they offer on handsets, triggering a strong backlash from mobile carriers. Analysts and company officials are skeptical about its effects on consumer protection.
However, discounts for phones offered by the three domestic mobile carriers ― SK Telecom, KT and LG Uplus ― dropped sharply this week, officials said.
Subsidies for the 930,000 won Samsung Galaxy S, for example, have fallen to around 200,000 won after starting at around 400,000 won. The KCC is pressuring firms to set the maximum subsidy below 270,000 won.
The changes come two months after the three mobile carriers, along with manufacturers, were hit with a total of 45.3 million won in fines for distorting markets by the Fair Trade Commission (FTC) in March.
The KCC and FTC said that companies were using subsidies to lure consumers into buying expensive handsets which gave products the impression of being high quality yet affordable.
Competition has fueled mobile carriers to continuously increase the prices of phones.
KCC Chairman Lee Kye-cheol held a meeting with the CEOs of telecommunications firms after the fines were imposed and asked them to ease up on the marketing battle that is proving costly for both consumers and companies.
“It is the stance of the KCC, that telecommunications companies stop their fruitless marketing war and focus on providing consumer services instead,” said a KCC official. “We monitor prices weekly to make sure they are in accordance with the guideline set by us.”
Though the mobile carriers admit that subsidy prices have dropped this week, they strongly denied additional orders from the KCC besides the guideline and stated that the changes were due to the current market situation.
“The issue of subsidies has been raised by the KCC for years,” said a KT official. “It is true that there were some changes in subsidies from last week to this week. But the changes reflects the current market atmosphere, not any new order given by the KCC.”
Telecommunications companies are suffering from a decline in earnings, shown in their respective quarterly reports released this month.
The decrease is due to marketing fees and investments in long-term evolution (LTE), the technology succeeding 3G that is gaining wide popularity. All three companies say that the market changes reflect pricing, and changes are unpredictable.
“There was a steep drop in profits to consider for all three mobile carriers,” said a SK Telecom representative. “All three companies are overburdening themselves because of the money that went into LTE. We are all backing out (of the price raising marketing strategy) considering our low funds.”
Kim Hong-seek, an analyst at NH Securities, said it is ludicrous for the KCC to allow discounts while slamming subsidies in its official guideline for prices given to telecommunications companies, when the two are practically the same.
“The KCC needs to clarify its stance on what they are trying to achieve in the mobile market, and change its approach. It says it is trying to mitigate the burden on consumers, but that is not becoming a reality, and will not become one, because the mechanisms of the market are beyond its control.”